Tie-ups with banks to lift income

Pos Malaysia Bhd
(Jan 19 RM3.64)
Maintain buy recommendation, upgrade target price to RM4.45 from RM4.33: Pos Malaysia is expanding its range of counter services following its recent partnerships with Malayan Banking Bhd and RHB Bank Bhd to offer shared banking to the customers of both banks.

The company’s efforts to expand its retail services prompt us to increase our revenue forecast for its retail division (Pos Niaga) by 10% for FY11 and 15% for FY12 as well as earnings growth of 3% for FY11 and 6% for FY12.

Pos Malaysia’s strategic partnership with Maybank aims to provide selected over-the-counter services such as cash deposits and withdrawals for savings account holders as well as loan repayments.

Maybank plans to provide these services at more than 400 Pos Malaysia outlets by end-June this year. The partnership with Maybank comes on the heels of Pos Malaysia offering RHB Eazy Banking services in partnership with RHB, which will be extended from 21 to 300 branches by the middle of this year.

Pos Malaysia’s alliance with the two banks will scale up their initiatives to provide banking services to a larger base of customers — especially the underserved segment in rural areas, particularly Sabah and Sarawak, where there is limited access to internet banking — by leveraging on the extensive reach of Pos Malaysia’s outlets.

Pos Malaysia has changed its strategy, deploying staff from its automated mail processing centre to its branches to improve customer service delivery and efficiency.

In March 2007, Pos Malaysia inked a similar agreement with CIMB to distribute CIMB Bank’s Xpress Cash, microcredit loans and credit cards to widen access to banking services, including in rural and less affluent areas.

However, the partnership ceased sometime in 2009, given the limited banking services offered by that tie-up owing to staff shortage, poor customer service and the long queuing time.

On average, Pos Malaysia will impose a RM1 service charge for every banking transaction. Although we are unable to reach management for now, we suspect that the Pos Malaysia and CIMB tie-up recorded some 7.5 to 8 million in transactions, which contributed RM7 to RM8 million of revenue through an estimated 50 to 60 branches.

This time around, we see the tie-ups with RHB and Maybank making significant contribution and are projecting that its retail revenue will grow by 10% for FY11 and 15% for FY12, given the wider range of services provided.

Following the higher revenue revision, we are raising our earnings estimates by 3% for FY11 and 6% for FY12.

As we adjust our earnings forecasts for FY11/12, we retain our “buy” call and upgrade our target price to RM4.45 from RM4.33, based on sum-of-parts. — OSK Research, Jan 19